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Markets close up after restless session

North American markets ended a volatile session higher today, but the gain was modest due to dismal earnings reports from two major U.S. banks and a downgrade of the major Canadian banks.

By Malcolm MorrisonTHE CANADIAN PRESS

Fri., Jan. 16, 2009

North American markets ended a volatile session higher today, but the gain was modest due to dismal earnings reports from two major U.S. banks and a downgrade of the major Canadian banks.

Toronto's S&P/TSX composite index closed up 40.79 points to 8,920.4 today. That follows triple-digit swings through positive and negative territory for a loss of 165 points or 1.8 per cent this past week, as concerns piled up about banks and oil prices retreated.

The TSX Venture Exchange advanced 21.35 points to 865.65, while the Canadian dollar snapped a five-day losing streak, rising 0.23 cent to 80.13 cents US. The loonie had fallen more than four cents on a stronger greenback and tumbling oil prices.

New York's Dow Jones industrial average gained 68.73 points to 8,281.22 as the reality of rising losses at Citigroup and Bank of America Corp. sank in on Wall Street.

The financial sector was up in early trading, as investors focused not on the losses at the big banks, but the steps they were taking to improve their profitability.

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Those gains were later reversed as investors appeared to grow more pessimistic about the struggling financial industry.

"Every time the government does something, there is an initial and fleeting excitement this will help", said John Merrill, chief investment officer of Tanglewood Wealth Management in New York.

"But (investors) look deeper and see, wow, this is a mess."

The blue chip index gave back 318 points or 3.7 per cent.

Bank of America shares were off $1.14 to US$7.18 after the Bush administration reached an agreement to provide it with an additional US$20 billion worth of fresh capital to help it absorb losses at Merrill Lynch, which the company acquired Jan. 1.

And Citigroup says it is splitting up into two businesses. One business, Citicorp, will do traditional banking, and the other, Citi Holdings, will hold the company's riskier assets.

The bank's move reveals its growing focus on back-to-basics lending and deposit-gathering, and dismantles the "financial supermarket" created a decade ago.

The move by Citi follows a deal earlier in the week to sell control of its brokerage business to Morgan Stanley as it looks to streamline operations and shed assets.

At the same time, both banks reported steep quarterly losses.

Escalating credit losses drove Bank of America to a loss of US$2.39 billion and the firm slashed its quarterly dividend to a penny.

Citigroup posted a fourth-quarter net loss of US$8.29 billion, or $1.72 per share.

Analysts expected a loss of $1.31 per share and its shares slipped 33 cents to US$3.50.

The Nasdaq composite index rose 17.49 points to 1,529.33 as investors appeared pleased with results at chip maker Intel Corp.

Sales slumped 23 per cent, in line with Intel's previous guidance, as Intel was hurt by poor PC sales that have crimped demand for microprocessors. The shares gained 45 cents to US$13.74.

"The orders are drying up – that's what I'm seeing," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.

"I looked at some of the numbers from Intel, Alcoa, Tiffany's – they're all reporting revenue drops year over year of over 20 per cent. That's a staggering drop."

The S&P 500 index climbed 6.38 points to 850.12 as investors also took in tame inflation data from the U.S.

A record plunge in gasoline prices pushed overall consumer prices down for the third straight month in December, as consumer prices dropped by 0.7 per cent.

For the year, consumer prices edged up by just 0.1 per cent, the smallest annual change since consumer prices actually fell by 0.7 per cent in 1954.

And U.S. industrial production plunged by two per cent last month, double the amount analysts expected and capping the worst year for manufacturers since 2001.

Toronto's financial sector slipped 1.45 per cent as all the major Canadian banks were rated "sell" by Dundee Securities. Royal Bank (TSX: RY) gave back 40 cents to $33.64 and Scotiabank (TSX: BNS) declined 91 cents to $30.45.

The financial sector gave back over five per cent this week.

The energy sector was up 0.8 per cent as oil prices headed higher after almost touching the US$33 level Thursday. The February crude contract on the New York Mercantile Exchange rose $1.11 to US$36.51 a barrel.

The base metals sector was up more than three per cent with March copper ahead 7.4 cents to US$1.5275 a pound. That helped Sherritt International (TSX: S) move ahead 15 cents to $3.72 and FNX Mining Co. (TSX: FM) advance 25 cents to $3.70.

Agrium Inc. (TSX: AGU) shares were $2.16 higher to $42.06 after it said it expects to take a US$115-million writedown on its retail operations due to "unprecedented volatility" in global markets in yet another blow to the fertilizer industry.

Shares in Onex Corp. (TSX: OCX) were off six cents at $18.69 after it said it has raised US$3 billion of capital for its private equity fund, Onex Partners III LP. The company also warned it has temporarily halved its commitment to the fund due to the uncertain investing environment.

The conglomerate will now commit $500 million to the fund, down from $1 billion on "a temporary basis," it said in a release.

New Flyer Industries Inc. (TSX: NFI.UN) units were 42 cents higher to $9.30 after the Winnipeg-based manufacturer of heavy-duty transit buses said it ended 2008 with an order backlog of US$4.1 billion, up from $2.8 billion at the start of the year.

U.S. markets are closed Monday for the Martin Luther King holiday.

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